I was talking about mistake fares with someone the other day, and that reminded me of a time when I filed a couple of mistakes myself as a pricing analyst at America West. One, from Phoenix to Baltimore for under $100 roundtrip, did very little damage since it was a web-only fare. We caught it before many had seen the error. That turned the discussion toward web fares in general. You might wonder why you so rarely see them anymore here in the US. There’s actually a reason for that.
When airlines first realized that the internet was a viable option for selling flights back in the 1990s, they saw dollar signs in their eyes. Selling through traditional channels was expensive. The Global Distribution Systems (GDSs) like Sabre charge a whole lot of money to sell through them. Every time a traveler booked a segment (not even ticketed, just booked), that meant dollars out the window for the airlines. At the same time, airlines still paid travel agent commissions to anyone who sold a ticket. It was an expensive proposition.
With the internet, airlines realized they could cut their fares but then cut their costs even more. The end result was that they’d make more money on a ticket even with a lower fare. And with a lower fare, they could convince more travelers to try out the new technology. That meant that the web became the discount channel by default. Airlines touted the increase in the percentage of bookings via their own websites as a major sign of success. They invented all kinds of unique promotions, including those weekly web fares (“Surf ‘n Go” at America West) that helped fill seats on empty flights at the last minute.
While this was happening, the GDSs sat on the sideline anxiously. They saw airlines aggressively trying to shift business away from them, and that meant their big revenue streams were at risk. They had to do something to stop the inevitable shift away. They knew that they still had a lock on corporate travel at that point, so they could use that as leverage. An idea was born.
The GDSs agreed to dramatically reduce booking fees for airlines on one condition. The airlines had to publish all fares in the GDS. This deal, commonly called a “most favored nation” clause, was the death knell for web fares. After all, if you could no longer shift share by discounting, why would you offer it at all? That was the point. But airlines looked at the ability to reduce their booking costs and realized they had to take the deal. It was a smart move financially, at least in the short run.
Over the years, we’ve seen airlines get more and more testy about these deals. We’ve even seen American argue in court that they’re anti-competitive. American and others have suggested that the GDSs are using their monopoly standing to force them into these deals because the financial penalties for opting out are too onerous. Others have gotten creative.
Frontier, having signed this deal when it was effectively a different airline, has been trying to reduce costs. It created a equivalent fare that would reduce benefits (carry-on bag fees, for example) for those who booked through third parties. I’m sure that was probably going to end up in court, but Frontier backed away and revamped its fare structure completely anyway. Now the benefits have been stripped from all fares.
Of course, not all airlines have played this game. Southwest largely doesn’t sell through third parties so it never even engaged in this. Spirit, however, does. And the airline is notably more expensive if you don’t book on the airline’s website. You’ll see Hawaiian also is cheaper on its own site. Internationally, the one that stands out to me has always been Air New Zealand. But there are others as well.
Eventually, as GDSs either change or lose their grip, we’ll see these deals come apart. But even if they do, we probably won’t see airlines rushing back into the web fare game as you know it. The days of discounting just to convince people to use the web for booking have long passed. But it wouldn’t surprise me to eventually see airlines have differentiated pricing in different channels. People will hate it if it’s not done right, but that’s a conversation for another time.
